Agrarian reform credit

Audit report covers the period 7/80-6/81 and is based on site visits, document review, and discussions with USAID/ES and GOES officials. Progress has been made toward project objectives. The Agricultural Development Bank (BFA) has loaned $3.8 million to co-ops and has now received a revolving fund of an additional $4.7 million to be loaned during the 1981 crop season. However, due to personnel shortages and poor interagency cooperation, the BFA and the Institute of Agrarian Transformation - the other project implementor - have provided co-ops with little or no credit supervision. As a result, co-ops have had numerous problems with commodities purchased with loan funds and, in some cases, credit was not used for the stated purposes. For example, some cattle purchased by co-ops had tuberculosis and others were malnourished; a milking machine became inoperative after a month; a cream separator and milk cooler were not used because installation instructions were not provided; and money allocated to improve pasture and part of a loan made for coffee and tomato production were used to pay co-op operating costs. In addition, because co-op personnel received very little technical assistance (TA), co-op accounting records were inadequate and failed to show in detail how BFA loan funds were spent; financial reports on co-op operations were lacking. Improved procedures were also needed in other areas. Exact project costs could not be determined because a computer listing of BFA"s reimbursement requests had errors that overstated, and in some cases, understated project costs; about $872,000 of ineligible loan expenditures had been reimbursed by USAID/ES. The contractor who was to provide TA to the BFA did not have an implementation workplan. As a result, the assistance provided was operational rather than advisory. Moreover, the contractor"s quarterly reports were inadequate, and an advisor who left the country for security reasons continued to be paid. Finally, project monitoring was limited due to the unstable political situation and inadequate USAID/ES staffing. Six recommendations address all the above noted problems.